Mulvaney Urged Not to Weaken Military Consumer Protections

Almost 30 military associations and veterans groups on Thursday sent a joint letter to Mick Mulvaney, acting director of the Consumer Financial Protection Bureau, urging that he not weaken CFPB enforcement of the 2006 Military Lending Act to leave military consumers more vulnerable to predatory or deceitful lenders.

The letter also was addressed to Defense Secretary James Mattis because his department wrote the loan protection regulations to implement the lending law.

“We urge you to stand with the troops and against any attempt to weaken the Military Lending Act, including the Bureau’s supervisory and enforcement authority and the Department’s rules against predatory lending by all businesses, including by car dealerships,” wrote the advocacy groups.

A week earlier Senate Democrats sent their own joint letter to Mulvaney pleading that he not direct the Bureau to trim its audit responsibilities and “make it easier for unscrupulous lenders” to target military members and their families.

Sparking these concerns is a two-page internal document at CRPB, reported on last week by the New York Times, that shows Mulvaney, who also is director of the Office of Management and Budget, considering a policy change to have Bureau auditors ignore the Military Lending Act when conducting routine supervisory exams of banks, savings and loans, payday lenders and other loan originators and brokers.

Kelly Hruska with National Military Family Association, one nearly three dozen advocacy groups opposing the move, “said we fought hard for the Military Lending Act” and have prized how the CFPB since its creation has been “proactive in enforcing” the law. “We don’t want to see that go backwards.”

“I am profoundly troubled that the Bureau tasked with protecting consumers, including service members, is apparently planning to make a policy decision to no longer include compliance with the Military Lending Act regulation in its supervisory exams,” said Christopher Peterson, one of the nation’s top consumer law experts.

Peterson also is a senior fellow at Consumer Federation of America (CFA), and served for years as special advisor to the former CFPB director, where he helped Defense officials revise military loan protection regulations in 2015 to close loopholes that predatory lenders found and used in the original rules.

“As a practical matter,” said Peterson, the policy change Mulvaney eyes would amount to “turning the agency’s back on our service members, at a time when leaders in Washington should be focusing on making sure the industry is complying with new regulations” to protect military consumers.

President Trump appointed Mulvaney acting director last year. The senior staff he hired reportedly has decided that neither the Dodd-Frank Act, which establish the CFPB in 2010, nor the Military Lending Act as modified in 2013, provide specific authority to audit lending institutions for compliance with the Military Lending Act.

The idea that Bureau auditors, “in effect, are supposed to put blinders on and ignore Military Lending Act violations they come across is very inefficient and a bizarre policy response,” said Peterson. “It also isn’t required by law, in my view. Congress provided the CFPB with authority to conduct exams to supervise for risk to consumers. One risk would be that service members are denied their legal rights under the Military Lending Act.”

Peterson said no recent court ruling or Department of Justice opinion has surfaced to justify relaxing Bureau enforcement practices. If Mulvaney makes the change, said Peterson, “it will be a political decision. It will not be a legal decision.”

We asked the Bureau Wednesday about the status of this proposal that has ignited outrage among military consumer advocates, and whether the policy change would in fact leave service members more exposed to predatory lenders.

“Under new leadership,” responded CFPB spokesman John Czwartacki, “the Bureau has engaged in a comprehensive review of its activities and is assessing whether those activities align with its statutory authority. [The Military Lending Act] is one authority, among many, that the Bureau has examined. The Bureau expects to convey its findings to Congress and to seek legislative clarity where warranted.”

Until a month ago, Paul Kantwill was the Bureau’s assistant director in charge of its Office of Servicemember Affairs, which partners with the Department of Defense to educate military consumers, handle complaints about financial products and services, and help to enforce state and federal consumer protection measures.

The proposal to end Military Lending Act compliance checks surfaced after Kantwill left to become a senior fellow at Loyola University Chicago School of Law. He said he opposes the move.

“It seems to make little sense to many of us that this activity would cease,” said Kantwill, a retired Army lawyer who later directed the Office of Legal Policy for the undersecretary of defense for personnel and readiness and was responsible for writing regulations to implement the Military Lending Act.

CFPB “has been very effective” in maintaining the “financial readiness” of military personnel, Kantwill said. “It would seem to be a very dangerous precedent to walk back those policies and procedures” for protecting military consumers.

Before the Military Lending Act became law, payday lenders were ubiquitous outside military bases. Many service members seeking fast cash got stuck in short-duration loans with interest rates of 300, 400, even 500 percent.

The 2006 law imposed a 36 percent cap on rates lenders can charge active duty military personnel and families. It directed the Defense Department to issue regulations identifying types of loans impacted. The original rules targeted payday loans, vehicle title loans and tax refund anticipation loans. The law also provided other protections. For example, it banned inclusion of arbitration agreements in loans designed to deny military borrowers the right to sue over deceptive practices.

The law served to stamp out major abuses involving particular loan products. But soon lenders changed practices to circumvent them. For example, the rate cap applied only to payday loans of 91 or fewer days, so lenders shifted to offering loans of longer duration. It covered vehicle title loans of $2,000 or less and 181 or fewer days, so lenders offered bigger loans of longer duration to avoid the cap.

The fiscal 2013 defense authorization act gave the CFPB enforcement authority for the Military Lending Act. It also directed Defense officials to lead an interagency working group to find ways to strengthen loan protection regulations and expand the number of products covered. The new rules, which parts the loan industry strongly oppose, took effect four months before Trump became president.

Peterson said he won’t speculate on why the CFPB under Mulvaney is considering weakening its oversight of the Military Lending Act.

“What I am willing to say is that the effect of this would be to provide protection from potential legal liability, and from public relations problems, for payday lenders,” said Peterson, a professor at the University of Utah School of Law.

Mulvaney also wants to restrict public access to the complaints that consumers can file about companies. Millions of complaints are now accessible on CFPB’s website, with the companies named but not the consumers who file complaints.

Mulvaney “has said he wants to make those complaints confidential so the public won’t be able to see them,” said Peterson.

Tom Philpott has been breaking news for and about military people since 1977. After service in the Coast Guard, and 17 years as a reporter and senior editor with Army Times Publishing Company, Tom launched "Military Update," his syndicated weekly news column, in 1994. "Military Update" features timely news and analysis on issues affecting active duty members, reservists, retirees and their families. Tom's freelance articles have appeared in numerous magazines including The New Yorker, Reader's Digest and Washingtonian.

His critically-acclaimed book, Glory Denied, on the extraordinary ordeal and heroism of Col. Floyd "Jim" Thompson, the longest-held prisoner of war in American history, is available in hardcover and paperback on Amazon.